Post card from Turkey

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This is part of a series of post cards from Reuters reporters from across Europe, Middle East and Africa.

Political risk is set to fall in Turkey if the government plays its cards right

Turkey’s ruling party posted its worst election result since 2002 in March local polls as voters penalised the AK Party and Prime Minister Tayyip Erdogan for failing to address a weakening economy, corruption allegations and a perception that the government was losing touch with voters. In a rare move, Erdogan, a tough politician who keeps tight control of levers of power in Turkey, admitted his party had underestimated the global crisis and promised to focus on the economy, including speeding up finalising a deal with the IMF. He also promised to reach out to the opposition over EU reforms. If he sticks to his promises, the economy will begin to improve, but probably not fully until 2010, and political risk will fall.

Unlike some emerging market peers, Turkey is lucky in that it does not face social unrest as a result of the economic slowdown, as the AK Party remains popular, the opposition is weak and labour unions are fragmented.

However, Erdogan’s character is unpredictable and the next test will be how he addresses a planned amendment to the military-inspired constitution. If the AK Party, which has roots in political Islam, fails to engage the opposition we could face another standoff with the secular establishment, including army generals and judges, and return to the political tensions of 2006-2008. Some senior advisers of Erdogan have already forgotten about the election results and are saying ‘what crisis?’ — a worrying sign. Another risk will be how far authorities push an investigation into an alleged coup plot against the government. If the probe appears as a witch hunt against opponents and the military’s name is sullied, the generals may not be able to hold back rebellion among junior ranks.